E-Alert Case Updates

Judicial Review of Arbitrator’s Decision Between Liability and Remedial Phases of Labor Arbitration Deemed Premature

Peabody Holding Company, Inc. v. United Mine Workers of America
No. 14-2032, (U.S. Court of Appeals for the Fourth Circuit, March 8, 2016)
by Caroline E. Willsey, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In Peabody Holding Company, Inc. v. United Mine Workers of America, No. 14-2032, the United States Court of Appeals for the Fourth Circuit was asked to decide when and under what circumstances courts should review a labor arbitrator’s decision.

The dispute in question arose out of a Memorandum of Understanding Regarding Job Opportunities (the “Jobs Memo”), signed by the United Mine Workers of America (the “Union”) and Peabody Coal Company (“Peabody Coal”) in 2007 as part of a broader collective bargaining agreement. Peabody Coal signed the Jobs Memo on behalf of itself and as a limited agent of its corporate parent, Peabody Holding Company (“Peabody Holding”), and several of Peabody Holding’s other subsidiaries, including Black Beauty Coal Company (“Black Beauty”). The purpose of the Jobs Memo was to require companies under the parent company, Peabody Holding, to give preferential hiring treatment to coal miners who had been laid off by Peabody Coal. The Jobs Memo included a binding arbitration clause.

Later that year, Peabody Energy Corporation (“Peabody Energy”), the corporate parent of Peabody Holding, initiated a new spin-off entity called Patriot Coal Corporation (“Patriot”). Peabody Coal subsequently became part of Patriot, as did all other Peabody Holding subsidiaries with the exception of Black Beauty. After the spin-off, Peabody Coal no longer had any corporate relationship with Peabody Holding or Black Beauty (collectively the “Companies”).

In 2008, the Union sent a letter to Peabody Holding and Black Beauty stating that both were still bound by the Jobs Memo’s preferential hiring requirements. Peabody Holding disagreed, taking the view that the spin-off of Peabody Coal from the rest of the Peabody corporate family ended any obligation of Peabody Holding and its subsidiaries under the Jobs Memo. Because the Union and the Companies could not resolve the dispute themselves, they submitted the dispute to arbitration.

The parties decided to bifurcate the dispute. First, the arbitrator would resolve the question of whether Peabody Holding and Black Beauty continued to be bound by the Jobs Memo after the spin-off. If that question was resolved in the Union’s favor, and the parties still could not agree on an appropriate remedy for Peabody Holding and Black Beauty’s refusal to abide by the Jobs Memo, resolution of the remedy issue would again be submitted for arbitration.

After hearing arguments from both sides, the arbitrator ruled that the Jobs Memo remained in force even after the spin-off. Unhappy with the arbitrator’s decision, the Companies filed a declaratory judgment action in the Eastern District of Virginia. The Union then filed a counterclaim to enforce the decision in addition to a motion to dismiss the Companies’ complaint, arguing that judicial review of the arbitrator’s decision was not proper until arbitration was complete. Both parties later filed cross motions for summary judgment on the merits of the arbitrator’s liability decision.

The district court denied the Union’s motion to dismiss. The district court determined that the arbitrator’s award as to liability was final, and therefore, it was reviewable. The parties’ earlier decision to bifurcate the arbitration was critical to the district court’s determination. The district court then granted the Union’s motion for summary judgment by enforcing the arbitrator’s decision as to the Companies’ liability under the Jobs Memo. The Companies appealed. On appeal, the issue was limited to whether judicial review of the arbitrator’s liability decision was appropriate in light of the fact that the arbitration was not complete.

Long-standing Supreme Court precedent provides that a party may only seek judicial review of an arbitration award if the award is “final and binding.” Many courts have interpreted this directive to mean that a federal district court should not review a labor arbitrator’s decision until the arbitrator has ruled on both liability and remedies – a procedural requirement commonly known as the complete arbitration rule. The complete arbitration rule ensures that courts will not become “incessantly dragooned into deciding narrow questions that form only a small part of a wider dispute otherwise entrusted to arbitration.”

The Fourth Circuit noted that this case called for a straightforward application of the complete arbitration rule. The Court observed that when a labor arbitrator first decides liability questions and reserves jurisdiction to decide remedial question, a federal court should withhold review of the arbitrator’s liability decision until the arbitrator has had the opportunity to rule on the remedial question.

The Companies argued, however, that application of the complete arbitration rule was not straightforward. First, the Companies pointed out that they and the Union had chosen to bifurcate their dispute. This, the Companies argued, permits judicial review of the arbitrator’s liability decision beforehand to deal separately with the issues of liability and the remedial issue. The Court disagreed, ruling that the fact that the parties agreed to bifurcate their arbitration does not change the fact that they also agreed to submit the entire dispute to arbitration. The Companies also argued that judicial review was appropriate because it would be more efficient to have judicial review now than later. The Court objected to this argument, noting that it overlooked the widely held view that the sort of interlocutory appeal the Companies sought can become “inherently disruptive, time-consuming, and expensive,” if not circumscribed.

Ultimately, the Court held that judicial involvement in the labor dispute at issue was premature and that the arbitrator should have been given the opportunity to resolve both the liability and the remedial phases of the dispute. The Court, therefore, vacated the district court’s order confirming the merits of the arbitrator’s liability decision and directed the court to return the dispute to the arbitrator.